2.2 Revenue streams
Revenue streams are the sources of revenues that the business model is able to generate. The question at issue here is: ‘For what value are customers willing to pay?’ (Osterwalder et al., 2010, p.31). It is also important to clarify how revenues are collected or, in other words, how customers pay. Different types of business models have different ways of generating revenues. The different types of revenue models are advertising, subscription, transaction fee, sales and affiliate models. A business model is able to generate both one-time payment transaction revenues and recurring revenues by continuing to offer value proposition to customers, or from post-sale services.
In the case of a drone spraying business, there are several ways they can generate revenue:
- direct sale of drone systems
- subscription services for software and data analysis tools
- leasing programs for drones and equipment
- training services for farmers and agricultural workers
- consultancy fees for providing expert advice and customised solutions.
Revenue streams are also dependent on pricing mechanisms. Osterwalder et al. (2010, p.33) identify two main mechanisms: fixed price, based on static variables; and dynamic prices, based on market conditions.
The following table shows the fixed prices mechanism.
Pricing mechanisms | Description | Example |
---|---|---|
Fixed pricing | The price is fixed and does not change | Some commodities whose price is fixed, such as water or energy (considering a short-term horizon). |
Feature dependent | The price is based on the level of quality | The price of a model of a car depends on the trim and the option |
Customer segment | The price changes according to the customer segment approached | The price may change for particular groups of clients, such as students |
Volume dependent | There are discounts related to quantity purchased | Many sellers of goods offer discounts if products are bought in large quantities |
Dynamic price mechanisms are presented in the table below.
Pricing mechanisms | Description | Example |
---|---|---|
Negotiation | The counterparts negotiate an agreement | The price is agreed and usually defined in a specific contract: house renovations are typically agreed between the contractor and the landlord. |
Yield management | The price changes according to availability and time | Flight tickets are priced dynamically according to several variables, including the time of purchase and the capacity. |
Real-time market | The price changes according to supply and demand | This is the typical case of stock markets |
Auctions | Competitive bidding defines the price | Auction houses such as Sotheby’s in London or online platform such as eBay offer this kind of pricing mechanism. |
Activity 4
Considering the pricing mechanisms in Tables 2 and 3, match the product or service proposed below with its most likely pricing mechanism.
Using the following two lists, match each numbered item with the correct letter.
-
Yield management
-
Fixed price
-
Negotiation
-
Auction
-
Feature dependent
-
Customer dependent
-
Volume dependent
-
Real-time market
a.Retail clothing
b.iPhone
c.Bulk purchase of groceries
d.Software licences for business and academic statistical software
e.Abandoned property
f.Foreign currency
g.House sales
h.Hotel rooms
- 1 = h
- 2 = a
- 3 = g
- 4 = e
- 5 = b
- 6 = d
- 7 = c
- 8 = f